GBP / USD technical analysis: an important trading day
Risk appetite and the focus on UK vaccinations helped the GBP / USD move towards the 1.3925 resistance level in an attempt to stick to the uptrend. The Forex market will be strongly affected by the announcement by the US Federal Reserve of its monetary policy decisions and the comments of its chairman Jerome Powell. In the absence of any significant UK data in the economic calendar, the reaction of the dollar will determine the path of the currency pair.
Overall, while the Fed expects to maintain its monetary policy preparations, Powell needs to convince markets that the Fed will stick to higher inflation expectations, despite improving growth prospects for the year. US economy, in order to calm speculation about early declines in asset purchases. and continued early rise in interest rates.
In return, the Bank of England will likely follow the Bank of Canada and gradually reduce its quantitative easing program next month, according to a NatWest Markets analysis. NatWest said the BoE will likely announce at its May 6 meeting that it intends to reduce the pace of its bond acquisitions as part of its quantitative easing program, which will further increase yields on bonds. debt securities.
The Bank of Canada (BoC) became the first global central bank to announce such a policy at its April meeting, which took place last week.
The move was recently cited by analysts as one of the main drivers of the outlook for the Canadian dollar, and those watching the pound’s exchange rates will expect a similar reaction. John Briggs, analyst at NatWest Markets, says, “The business started with recycling. Of course, it wasn’t the Federal Reserve or the European Central Bank that started it, it was the Bank of Canada. “
On Wednesday, the Bank of Canada cut its quantitative easing program from C $ 4 billion to $ 3 billion per week. As a result, Briggs says, “I think it’s important because it might start to put the next phase of 2021 on the minds of investors, which is the phase of gradual decline. As the Bank of Canada enters a gradual season, I expect the BoE in May to completely shift investor attention to the issue. “
Additionally, Briggs says in a weekly client research file that he expects the Bank of England to announce in May a reduction in QE from £ 18bn per month to £ 14bn per month. . This reduction will be helped by a large deficit in government borrowing requirements and “also by the fact that the Bank of Canada has led the way.”
Recent survey data has shown the UK economy is recovering after the easing of restrictions in recent weeks, and economists expect the pace of the recovery to pick up with further easing allowed in May and June. For its part, the UK government’s Debt Management Office reported a decrease of 14.6% in total debt issuance as demand for government borrowed funds declined.
The Centers for Disease Control and Prevention relaxed its guidelines yesterday on wearing masks outside, saying fully vaccinated Americans no longer need to cover their faces unless they are in a large crowd strangers, and those who have not been vaccinated can go out. without a mask in some situations as well. The new guidelines represent another carefully calibrated step on the road to getting back to normal after the coronavirus outbreak that has killed more than 570,000 people in the United States.
For most of the past year, the CDC has advised Americans to wear masks outside even if they are not within 6 feet of each other.
Technical analysis of the pair:
On the daily chart, GBP / USD is still in its ascending channel. A move higher to break above the psychological resistance level of 1.4000 will encourage buying to test stronger highs which confirm a longer continuation of the current trend. The gain factors increase. The downside control on performance will be strengthened if it breaks below 1.3720 support. Overall, I would still prefer to buy the currency pair over all the downsides.